Real Money

Dell's Salvation May Be Upon Us

A private equity buyout may save the beleaguered firm.

NEW YORK ( TheStreet) -- Buyout speculation is once again swirling around the beleaguered Dell ( DELL), a move that could finally unlock the company's value after its shares fell by a third last year.

The No. 3 PC maker, once the world's largest, is in buyout talks with private equity firms, according to Bloomberg, which cited two people with knowledge of the matter. One unidentified source said Dell is in discussions with at least two firms. The sources, however, say the talks are preliminary and could collapse if the private equity firms are unable to gain financing or work out a future exit strategy.

Dell hasn't yet responded to TheStreet's request for comment, although at least one analyst says it would be a shrewd move for the Texas tech giant.

ISI Group analyst Brian Marshall notes that Dell is currently in the throes of a long-term transition from selling commodity PCs and servers to enterprise services, such as storage, networking, security and software.

"In our view, it can be difficult to realize the full value of various corporate assets (e.g., sum-of-parts) during transition periods and executing on a long-term transformation as a private company could have advantages," he wrote in a note released Monday. "Going private makes sense given Dell's low valuation, solid free cash flow, Michael Dell's large ownership stake and a multi-year business transformation."

Michael Dell owns just over 15% of the company's shares, according to Securities and Exchange Commission Filings as of May last year.

Investors welcomed the rumor. Dell shares, which have lost more than 22% over the past 12 months, closed up 13% to $12.29 on Monday.

Sterne Agee analyst Shaw Wu says a Dell private equity buyout is possible, but rates the likelihood of it happening as low.

"It would take sizable financing for a company of Dell's size with its $21 billion market cap," he wrote in a note on Monday. "In addition, a deal of this size would likely involve multiple private equity firms and we estimate that the majority of its businesses (70%) remain under structural and secular pressure."

This isn't the first time Dell shares have spiked on a buyout rumor. In October 2010, the company's stock rose following chatter that Michael Dell would make a bid to buy his company from shareholders.

Earlier in the same year, TheStreet reported Dell could be a take-private target, although analysts voiced doubts about whether Michael Dell could garner sufficient financing.

One thing's for certain, Dell's unlikely to get a boost from the PC market, which remains under pressure from tablet devices such as Apple's ( AAPL) phenomenally successful iPad.

Last week, tech-research firm Gartner published its report on worldwide PC shipments, which declined during the fourth quarter as more consumers opted for tablets. Dell was the third-largest PC vendor worldwide, after HP ( HPQ) and Lenovo, and its market share slipped to 10.2% from 12.2% in the prior year's quarter.

Mobile devices such as laptops accounted for 26% of Dell's fiscal third-quarter revenue, while desktop PCs were 23%. Servers and networking, software and services made up, respectively, 17%, 16% and 15% of the company's fiscal third-quarter sales.